Supply Chain Poses Potential for Risk in 2022

Companies should prepare for supply chain shortages by looking for additional sources and possibly investing in higher-than-normal inventory to allow for increased and unpredictable consumer demand.

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As we cross over the 1.5-year mark of the pandemic and approach 2022, there is still much volatility in the world economy. That’s why it is important to continue to focus on risk management. In 2022, commodity inflation and supply chain disruption may continue to impact companies across the globe. While we do see a move toward resolutions next year, it may be a slow process.

Businesses have been through much unpredictability with supply chain disruptions that have impacted their clients. While these issues should improve in mid-2022, companies should prepare for supply chain shortages by looking for additional sources and possibly investing in higher-than-normal inventory to allow for increased and unpredictable consumer demand.

Expect more normalization in terms of insolvency filings as we move into next year. Bankruptcies have affected many industries that have been acutely hit by the virus. While companies should not be overly confident, do expect to see a rise in insolvencies from current low levels.

There are many factors in the global economic environment and identifying risks, whether credit-related or in the supply chain, is crucial to survival in this environment. Diversifying your supply chain and customer base can certainly help alleviate some risk, but tighter credit control is also necessary to bolster risk management.

Since the reopening of the economy has been uneven, particularly for service-related industries, there will be sectors and regions that are poised for greater and faster recovery.

Latin America was the hardest hit by the pandemic, with a slow recovery for its emerging economies. In many of these countries, the pandemic has exacerbated underlying problems, such as income inequality and distrust in government.

Commodity industries, such as oil, gas and metals are poised to do well and regions that rely heavily on those sectors will recover faster but may be vulnerable if that changes. Areas that rely heavily on travel and tourism, such as the Caribbean, should see a favorable outcome as they open up for visitors.

There have been many rolling disruptions and additional discussion of supply chain shortages across industries. The semiconductor shortage has received a lot of attention and caused an impact in the automotive industry. This issue may continue in 2022 as supply chain problems linger.

In addition, there are concerns about a backlog of container ships at ports, causing more delays in the supply chain. Unfortunately, these shortages and delays sometimes cause hoarding behavior, which will exacerbate the problem and cause earlier shortages.

As businesses choose trading partners going forward, they need to watch out for red flags. Particularly for new vendors, it’s always important to know their fundamentals and business viability. One of the clearest indicators of trouble is a business’ payment behavior. One way to check is by knowing their patterns of payment and if they have missed payments. Tightening a business’ credit management by making sure there are proper credit procedures can save money in the long run.

Trade credit insurance can protect the business against many risks, especially during volatile times. Even positive sectors of the global economy are dealing with supply chain disruptions. Trade credit insurance can provide the stability and peace of mind that companies will be paid regardless of issues with vendors and can make suppliers whole in case of problems.

Furthermore, with new rules and regulations in various parts of the world as we rebound from the pandemic, it’s difficult for companies to stay up to speed with all the various guidelines. Working with a global trade credit insurer can alleviate this issue and can protect your business.